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	Forecasting America's Destiny ... and the World's

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Generational Dynamics Web Log for 6-Dec-2008
Disastrous employment figures cast a pall, but spur huge stock rally

Web Log - December, 2008

Disastrous employment figures cast a pall, but spur huge stock rally

In one of the worst job reports in history, 533,000 jobs disappeared in November, twice as many as analysts had predicted.

Unemployment: downward trend is accelerating <font face=Arial size=-2>(Source: WSJ)</font>

Unemployment: downward trend is accelerating (Source: WSJ)

Employment has been declining at an accelerating rate since last December, and there is no reason to believe that the accelerating trend is ending.

Even Canada was not spared, losing three times as many jobs as analysts had predicted.

In other disastrous news, car sales were down almost 40% last month, compared to the same month last year. Cars are piling up in car dealer lots around the country and in Detroit, and the inventory of unsold cars is growing more and more rapidly. One of the auto makers blamed the low demand for new cars on the fact that cars are more reliable than they used to be, and they last a lot longer.

I was very saddened on Thursday and Friday, watching the Congressional hearings on the proposed bailout of the Detroit auto makers, because it was clear that everyone was stunned and overwhelmed by what was happening. It was clear that a bailout is required to prevent a monumental disaster, putting hundreds of thousands of people out of work.

But it was also clear that nobody -- not the auto makers, not the Democrats, not the Republicans -- had any idea at all what can be done to improve the situation when the bailout runs out. Nobody said it explicitly, but it was obvious to everyone that there are too many car manufacturers, and too many car dealers. Whatever happens next, eventually there'll be a bloodbath. "There has to be a complete restructuring of the industry, or it's not going to survive," said one Republican opponent of the bailout.

There's a real "edge of the cliff" feeling in Congress and among the pundits. I could almost hear terror in some pundits' voices. I did hear an occasional Pollyannaish remark, like:

There'll be more unemployment, but this month's report will be the worst.
Car sales will remain low for a while, but the latest report will be the worst.
President Obama's stimulus package will turn the economy around.

But these remarks were rare.

But then, in the early afternoon, something happened. Something that could only happen in that wonderful, wacky, fairy tale world of Wall Street.

Investors decided that the news was so disastrously bad that it must be good, and the stock markets surged. The reasoning was that now all the bailouts would have to be approved, and besides, Obama would take office on January 20, so it was time for the bubble to grow again. The Dow Industrials went from down 400 to up 260. I watch these things with the same fascination as if it were a massive traffic accident and 100 car pileup. It's so gory that I can't take my eyes off of it.

Nonetheless, there's now some talk of a compromise, and there may be a temporary bailout for the auto industry next week.

As regular readers know, for the last few quarters I've been posting the table of S&P 500 average corporate earnings estimates, based on figures from CNBC Earnings Central supplied by Thomson Reuters. These tables have shown sharp falls in corporate earnings estimates from week to week.

In my previous article, "UBS AG analyst predicts a huge 53% stock surge in 2009," I posted the table for the third quarter.

Now, the fourth quarter estimates are becoming available. Here's the table:

  Date    4Q Earnings growth estimate as of that date
  ------- -------------------------------------------
  Feb 6:               50.0%
  Jul 1:               59.3%   Start of previous (3rd) quarter
  Oct 1:               46.7%   Start of quarter
  Dec 5:               10.0%

Isn't it fun to see the same thing happen, quarter after quarter? Doesn't it give you confidence that the people at Thomson Reuters have a clue what they're doing?

In other significant news, China's situation looks just as desperate as America's. According to Zhou Tianyong, a leading Communist Party scholar in Beijing, rising unemployment and the economic slowdown could cause massive social turmoil in China. "The redistribution of wealth through theft and robbery could dramatically increase and menaces to social stability will grow," he said. "This is extremely likely to create a reactive situation of mass-scale social turmoil."

As we wrote in 2005 in "China approaches Civil War," China has been in an economic bubble for decades, and economic problems would trigger a massive civil war of a type that is common in China's history.

What appears to be happening is that the collapse of America's economy is accelerating and, as things get desperately worse in China, the collapse of China's economy is accelerating at the same time.

The accelerating collapse of these two major economies is sure to be destabilizing large populations throughout Asia in particular, as tens of millions of people are thrown into poverty.

From the point of view of Generational Dynamics, we're headed for a massive worldwide generational panic and financial crash, the first one since 1929. It could happen next week, next month or later, but with the accelerating collapse of these two economies, it appears to be close.

(Comments: For reader comments, questions and discussion, as well as more frequent updates on this subject, see the Financial Topics thread of the Generational Dynamics forum. Read the entire thread for discussions on how to protect your money.) (6-Dec-2008) Permanent Link
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Generational Dynamics Web Log for 6-Dec-2008 Disastrous employment figures cast a pall, but spur huge stock rally

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Generational Dynamics Web Log for 6-Dec-2008
Disastrous employment figures cast a pall, but spur huge stock rally